The Effect of Taxation on Immunization Rules and Duration Estimation

ABSTRACT

Investments in default‐free bonds can be insulated from financial loss due to interest rate changes (via additive shock) by
a process known as immunization. The literature on this process ignores taxes. This manuscript focuses on three issues. The
first is the development of the tax‐adjusted immunization process with a comparison to the existing literature. The second
issue is the microeconomic effect of a shift in only the individual's tax rates on immunization and investment behavior. The
third issue is the macroeconomic effect of an across‐the‐board shift in tax rates on immunization and investment behavior.